Baseline update for U.S. farm income and government costs

ABSTRACT

Higher commodity prices contribute to a sharp increase in U.S. net farm income in 2021. Under current policies, farm income could drop again in 2022, as government payments decline and production expenses continue to rise. This report utilizes commodity supply, demand and price projections from the FAPRI-MU baseline update released in early September 2021 (FAPRI-MU Report #04-21, available at www.fapri.missouri.edu). Historical data are from USDA and include the revision to farm income accounts released by the Economic Research Service (ERS) on September 2, 2021. These baseline estimates reflect policies in place in late August 2021. It utilizes ERS estimates that farmers will receive about $18 billion in 2021 from pandemic-related programs such as the Coronavirus Food Assistance Program (CFAP), the Pandemic Assistance for Producers (PAP) initiative, and the Paycheck Protection Program (PPP). No further ad hoc assistance is assumed for 2022 and subsequent years, nor do these current-policy projections include any payments that might result from prospective legislation. Given the assumptions of the analysis, here are a few highlights of the results: * Projected 2021 net farm income reaches the highest level since 2013. Relative to 2020, a sharp increase in receipts from sales of crop and livestock products more than offsets the impact of higher production expenses and reduced government payments. * At $122 billion, projected 2021 net farm income exceeds that reported by ERS by several billion dollars. FAPRI-MU and ERS estimates of 2021 livestock sector receipts, government payments and production expenses are similar, but FAPRI-MU estimates higher receipts for corn, soybeans and other crops. * Total projected government spending on farm-related programs reaches a record $52 billion in fiscal year (FY) 2021. Spending on pandemic-related programs accounts for most of the outlays. Spending on 2018 farm bill commodity and crop insurance programs account for less than one-third of total expenditures on the selected programs in FY 2021. * Under current policies, government outlays drop to $22 billion in FY 2022, and government payments to farmers fall from $29 billion in calendar year 2021 to $6 billion in 2022. Conservation programs account for most 2022 government payments. * Projected market prices for several crops peak in the 2021/22 marketing year. As a result, feed grain and oilseed market receipts decline after 2021, but remain well above the levels of 2020. * In contrast, receipts for cattle, dairy and poultry all continue to increase each year. Hog receipts jump in 2021 with sharply higher barrow and gilt prices and then fall back in 2022 as prices moderate. * Higher costs for feed, purchased livestock, fertilizer and other farm inputs raise farm production expenses by $27 billion in 2021, and a smaller increase is projected for 2022. * In 2022, net farm income declines by $23 billion and net cash income falls even more sharply. Reduced government payments and higher production expenses explain the decline, as there is little net change in farm receipts. * In later years, projected net farm income remains fairly steady in nominal terms at just under $100 billion each year. After adjusting for inflation, real net farm income declines each year, and the projected value in 2026 is similar to that in 2019. * Rising asset values and slower growth in debt reduce the sector's debt-to-asset ratio in 2021 and 2022, temporarily reversing the trend of previous years. Lower projected farm income halts the rise in farm real estate values in 2023, and the debt-to-asset ratio again begins to increase. In contrast to the 2021 FAPRI baseline prepared earlier this year, these estimates do not consider market uncertainty. Small proportional changes in market receipts or production expenses can dramatically change the outlook for net income.